Top central bankers say ready for more action

FRANKFURT (Reuters) - Global central banks are ready to take further steps to ease market tensions and bolster faltering economic growth, top policymakers said on Friday, as world leaders gathered for talks on the economic crisis.

Speaking at a conference in Frankfurt, U.S. Federal Reserve Chairman Ben Bernanke and European Central Bank President Jean-Claude Trichet said close cooperation would continue and central bankers had not exhausted all their policy options.

Central bankers also saw room for countries to act together with targeted spending programs to support growth, although formal fiscal coordination was unlikely.

"The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain," Bernanke said in his address to the conference.

"For this reason, policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant."

Trichet said the spirit of intimate cooperation built up among central bankers as the financial crisis intensified was a major asset for the present and the future.

"The world can count on a continuation of this fruitful cooperation among central banks and it can also count on the fact that this cooperation occurs fully in line with our respective mandates," he said.

On October 8, central banks cut rates globally in their first broadly coordinated policy action in history, as fears of a deep recession pushed aside worries over inflation.

The Fed has cut rates 4.25 percentage points since September 2007 to 1 percent to counter the credit crisis and support the faltering economy. The ECB has cut by 1 percentage point since October 8 to 3.25 percent, and both are expected to cut by another half a point at their December policy meetings.

The 15-nation euro zone economy shrank 0.2 percent for the second quarter in a row, official data showed, signaling the bloc has fallen into its first recession since its creation in 1999.

U.S. retail sales fell a record 2.8 percent in October, the government reported on Friday, in the latest sign of the heavy toll the credit crunch is taking on U.S. economic activity.

Bernanke said he hoped leaders of the Group of 20 developed and emerging countries, meeting in Washington to try to find ways to tackle the crisis, would produce results.

"What we should look for is for the leaders to establish some general principles, indicate a direction and to set a timetable for discussions for all of us in the central banks and finance ministries in other forms like the Financial Stability Forum to execute. I hope to see positive results," he said.

FISCAL COOPERATION

As the crisis bites, countries around the world have announced close to $5 trillion in for bank bailouts and other public spending to support their economies.

China's deputy central bank governor Su Ning said the country's budget would fund a quarter of the 4 trillion yuan ($586 billion) economic stimulus package and he hoped other countries would do their share.

"Out of the four trillion yuan investment package, there is one trillion coming from the central government budget so in the next two years we are expecting an enormous fiscal deficit," Su told the conference. "So I sincerely hope that all the countries across the world could cooperate."

Bernanke said formal global cooperation on fiscal spending was unlikely but since combined action was more effective than individual efforts, convergence was likely -- a point also made by Bank of Israel governor Stanley Fischer.

"There is no formal policy co-ordination around the world but there is the invisible hand of the intellectual climate," Fischer said, while warning that extra spending was not appropriate for all countries.

"It becomes respectable to expand fiscally much more than it was acceptable before, so I think there will be significant simultaneous action but not formal coordination."

Bernanke said steps that central banks have taken to ease liquidity strains and ensure short-term dollar funding around the world have led to improvements in credit market functioning, although he described those gains as "tentative."

"Financial markets remain under severe strain," he said.

The central banks of the United States, the euro zone, Britain, Switzerland, Canada and Sweden all lowered official rates by a half-percentage point.

Bernanke said on Friday that the October 8 joint action had been motivated by an easing of inflationary pressures and increased indications of economic slowing in each country.

"The coordinated rate cut was intended to send a strong signal to the public and to markets of our resolve to act together to address global economic challenges," he said.

(Additional reporting by Marc Jones and Tamora Vidaillet)